OPEC Offers Little Hope On Fuel Prices

By HEATHER TIMMONS

Published: May 21, 2004

LONDON, May 20—
The president of the Organization of the Petroleum Exporting Countries said Thursday that there was little the group could do to lower fuel prices anytime soon, because OPEC's oil production quotas were not the main problem. His remarks contradicted statements last week by Saudi Arabia, the cartel's leading producer, calling for increases in the quotas to ease price pressures.

Purnomo Yusgiantoro, who is both the cartel's president and the energy minister of Indonesia, said that the recent sharp rise in retail prices for gasoline and other fuels was ''due to factors beyond OPEC's scope.'' In a meeting with reporters Thursday morning, Mr. Purnomo said that speculation, geopolitics and structural problems in the United States gasoline market were to blame for the run-up in pump prices in America.

Even so, he said, representatives of OPEC members will meet informally this weekend at an oil industry conference in Amsterdam to consider Saudi Arabia's proposals for raising production quotas by 1.5 million barrels a day.

Analysts said such a step would be largely symbolic, since almost all the cartel's members were already exceeding their quotas and pumping as much oil as they could.

''The price today is a high price, and we want it to be lower,'' Mr. Purnomo said in an interview Thursday afternoon at the Indonesian Embassy in London. But it would be very difficult for OPEC to overcome high prices by itself, he said, because simply pumping more crude would not address shortages of refinery capacity and other ''downstream'' bottlenecks and problems.

Fuel prices are becoming a more significant political issue in the United States, with pressure mounting on the Bush administration to act, by tapping the strategic petroleum reserve or by getting OPEC to produce more oil. Energy Secretary Spencer Abraham, who was also in London on Thursday, told reporters that he planned to discuss ways of cooling prices with OPEC members at the Amsterdam meeting, but declined to give specifics.

On Thursday, seven state attorneys general sent a letter to President Bush, asking him to urge Attorney General John Ashcroft to join them in investigating whether oil and gas companies and OPEC are colluding to drive up prices.

''We're asking the federal government to prove that it won't be a prisoner of energy interests in this country or worldwide,'' said Richard Blumenthal, the Connecticut attorney general, during a conference call with reporters.

Investigations into possible antitrust violations have often been conducted in the past when oil prices rose, but they have generally found little if any evidence of wrongdoing. ''Just because we have not found it does not mean it's not happening,'' said Bill Lockyer, the California attorney general, during the call.

The 11 members of OPEC produce about one-third of the world's oil supply. Iraq is a member, but it has not been included in quota agreements since it invaded Kuwait in 1990. Policy makers who had hoped that production in Iraq would revive and help bring down world prices have so far been disappointed. Though sanctions on Iraq were lifted after the United States-led invasion in March, persistent sabotage has held down the amount of oil the country has been able to ship.

At the root of the global problem, Mr. Purnomo said, is global demand for oil that is far outrunning forecasts. ''Everyone got it wrong,'' he said, adding that OPEC was awaiting the results of a study about the effects of oil prices ranging up to $34 a barrel over the long term, rather than the range of $22 to $28 a barrel the cartel had assumed before. The benchmark grade of light, sweet crude for June delivery closed at $40.92 a barrel in New York, down 58 cents from Wednesday's close.

Oil experts said Mr. Purnomo's assessment of the causes of high oil prices and OPEC's ability to affect them were a mixture of political posturing and fact.

''He's half right,'' said Fareed Mohamedi, chief economist for PFC Energy, a Washington-based consulting firm. Strong demand for crude oil and gasoline have helped drive prices up, Mr. Mohamedi said, but ''it's also the issue that OPEC and especially Saudi Arabia have not fully opened up the taps.''

Other experts said that only Saudi Arabia still had enough idle production capacity to affect global oil prices and that an increase in quotas for the rest of OPEC was meaningless. Already, the group as a whole is producing about 2 million barrels a day more than its 23.5 million barrel quota; raising the quota would only put a different label on what is already going on, they said.

''This is more of a public relations exercise'' than a serious plan to lower prices, said Leo Drollas, deputy director and chief economist at the Center for Energy Studies, a London-based research firm.

In response to the criticism, Mr. Purnomo said that the Saudi plan was just a proposal and that the members of the cartel had not approved it. Other ideas may also be considered, he said, without giving details.

In addition to an overall shortage of refining capacity in the United States, where refineries are running at more than 95 percent of their maximum, Mr. Purnomo said that variations in auto emissions standards from state to state also drove fuel prices higher. ''You can't easily move excess capacity from state to state,'' he said.

The state attorneys general agreed on Thursday that adopting a single national standard could alleviate some supply problems. Analysts said that would also make it less difficult for refineries overseas to supply the American market.

No matter what OPEC decides to do, there is little or no chance of relief in June, Mr. Purnomo said, because the tankers used to carry crude oil to market are already booked for the month and no more are available. ''I cannot change production in June,'' he said.

Mr. Purnomo also met with Gordon Brown, the chancellor of the exchequer, as Britain calls its finance minister. Afterward, Mr. Purnomo described the meeting as an exchange of ideas that did not include pressure on OPEC. But Mr. Brown issued a statement saying that ''it is crucial for the stability and prosperity of the world economy that OPEC act now to achieve a more sustainable oil price.''

Photo: OPEC as a whole is already producing as much as 2 million barrels a day more than its quota of 23.5 million barrels. (Photo by Bloomberg News)(pg. C4) Graph tracks crude oil prices (near-month contract), since December 2003. (Source by Bloomberg Financial Markets). It also lists the 52-week highs and lows of selected commodities, along with their closes yesterday and their changes, yesterday, year to date, and over the past 52 weeks. (pg. C4)